Which of the above diagrams best portrays the effects of an increase in foreign spending on our products?
A)A
B)B
C)C

Question

Which of the above diagrams best portrays the effects of an increase in foreign spending on our products?
A)A 
B)B 
C)C

Quizplus · Accepted Answer

In diagram C, an increase in foreign spending (represented by an outward shift of the Sf curve) leads to an increase in exports (represented by an outward shift of the X curve) and an increase in GDP (represented by a shift from Y1 to Y2). This is the desired effect of an increase in foreign spending on our products. In contrast, diagram A shows a decrease in exports and GDP, while diagrams B and D show no change in exports or GDP.

Which of the Above Diagrams Best Portrays the Effects of an Increase